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A Department of Veterans Affairs hospital project near Denver came to a standstill this week after federal judges ruled the VA was in breach of contract, hundreds of millions of dollars over budget and devoid of a plan to adequately fund the facility.

The billion-dollar project is one of four large VA construction plans that in recent years have faced cost and schedule overruns, as well as scrutiny by legislators and government auditors. The agency is moving to upgrade its facilities amid the growing number of veterans returning from more than a decade of war.

The Civilian Board of Contract Appeals in Washington, D.C., ruled Tuesday that Kiewit-Turner, a construction partnership, could walk away from its agreement to build the Aurora, Colo., facility, canceling a contract mired in failed negotiations, blown timelines, and allegations of inadequate planning and budgeting by the VA.

"We find that the behavior of the VA has not comported with standards of good faith and fair dealing required by law," a three-judge panel wrote. "The agency does not have sufficient funds to pay for construction of the entire project as currently designed and has no plans to ask for more money."

The VA hasn’t detailed its plans for finishing the hospital, which is 62% complete.

"VA’s senior leadership is in discussion with Kiewit/Turner’s senior leadership to find a potential way forward in light of the ruling by the Civilian Board of Contract Appeals," a VA spokeswoman said in a statement. "VA is committed to building this replacement hospital," she said earlier.

"The VA has contacted us, but we’ve not received any specific proposal on how to move the project forward," said a spokesman for Kiewit-Turner.

The project, which covers more than one million square feet, was designed to serve nearly 83,000 veterans and be a premier VA facility for Colorado with research and clinical wings. It was seen as a major upgrade to the existing Denver VA hospital, established in 1951.

In 2010, Kiewit-Turner signed on to a type of contract the VA hadn’t used before, according to court documents. It allowed for construction to take place even as planning and design hadn’t been finalized. The original agreement was for the VA to provide blueprints for a roughly $600 million facility, and for the contractor to remain in budget.

From the start, however, the design led to cost overruns, including designs well above the standard for a health-care facility, according to the contract board. VA management problems led James Lynn, a top employee at the VA’s construction manager for the project, to describe it as having "the least effective and most dysfunctional staff on any project that he had ever seen," according to the contract board. Mr. Lynn couldn’t be reached for further comment.

Cost estimates kept rising even as the VA didn’t provide complete plans to the contractor or allow substantive cost-cutting measures, according to findings in the board’s decision. Kiewit-Turner warned the price could hit $1.085 billion but kept building for fear the VA would blame the contractor for delays, according to Kiewit-Turner and an official familiar with the project.

In April 2013, Kiewit-Turner asked the VA contracting officer if it had the right to suspend work on the project. The VA didn’t give the company permission to do so. By June 2014, the contractor had sunk $20 million of its own funds into the facility and now has $100 million in the project, Kiewit-Turner said.

"The contract is broken, both legally and practically," Kiewit-Turner said in a statement Tuesday, and the company will "immediately cease all work on the project and begin a safe and orderly process to secure the site."

In a letter to the VA, Kiewit-Turner said it needs to be paid all outstanding costs and the project should be turned over to the U.S. Army Corps of Engineers to oversee its completion.

The VA declined to comment beyond its statement.